M/s. Loknath Saraf Securities Pvt. Ltd., Kolkata V. ACIT, Circle - 6, Kolkata, Kolkata

ITA 418/KOL/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4775 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 18-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2011
• Court: TRIBUNAL
• Department Lawyers: AROOP KUMAR
• Assessee Lawyers: A K JAIN
• Keywords: Capital asset; Business income; Rule of consistency; Transactions in derivatives; Earning of tax free income; Question of law; Tax effect
• Section: 143(3); 14A; 145

Judgement Text

1 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI N. V. VASUDEVAN, JM & SHRI M. BALAGAN ESH, AM] I.T.A NO. 300/KOL/2011 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME-TAX, VS. LOKENATH SARAF SECURITIES PVT. LTD. CIRCLE-6, KOLKATA. (PAN: AAACL4567A) ( APPELLANT ) ( RESPONDENT ) & I.T.A NO. 418/KOL/2011 ASSESSMENT YEAR: 2006-07 LOKENATH SARAF SECURITIES PVT. LTD. VS. DEPUTY CO MMISSIONER OF INCOME-TAX, CIRCLE-6, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 18.07.2016 DATE OF PRONOUNCEMENT: 03.08.2016 FOR THE REVENUE : SHRI AROOP KUMAR, CIT FOR THE ASSESSEE: S/SHRI ASHWANI KUMAR, C.A & A. K. JAIN, AR ORDER PER SHRI M. BALAGANESH, AM: THESE CROSS APPEALS BY REVENUE AND ASSESSEE ARE ARI SING OUT OF ORDER OF CIT(A)-VI, KOLKATA VIDE APPEAL NO. 599/CIT(A)-VI/07-08/CIR-6/K OL DATED 12.11.2010. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-6, KOLKATA U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2006-07 VIDE HIS ORDER DATE D 23.12.2008. BOTH THE APPEALS ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE 2. THE APPEAL FILED BY THE REVENUE IS TIME BARRED B Y 10 DAYS AND REVENUE HAS FILED A CONDONATION PETITION. AFTER PERUSING THE CONDONATI ON PETITION AND THE CONCESSION GIVEN BY THE LD. AR FOR CONDONING THE DELAY, WE CONDONE THE DELA Y AND ADMIT THE APPEAL OF REVENUE FOR HEARING. 2 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. 3. WE FIND FROM THE QUANTUM INVOLVED IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS HAVING TAX EFFECT OF LESS THAN RS 10 LACS. THE CBDT IN ITS RECENT CIRCULAR NO. 21 / 2015 DATED 10.12.2015 HAD CATEGORICALLY STATED THAT THE APPEAL S PREFERRED BY THE REVENUE BEFORE THE INCOME TAX APPELLATE TRIBUNAL WHERE THE TAX EFFECT ON DISP UTED ISSUES IS LESS THAN RS 10 LAKHS NEEDS TO BE WITHDRAWN BY THE REVENUE. IT IS ALSO MADE CATEG ORICAL IN THE SAID CIRCULAR THAT THE SAME SHALL BE APPLICABLE TO PENDING APPEALS ALSO. HENCE RESPE CTFULLY FOLLOWING THE CIRCULAR NO. 21 / 2015 DATED 10.12.2015, WE DISMISS THE APPEAL OF THE REVE NUE IN ITA NO. 300/KOL/2011. ITA NO. 418/KOL/2011 ASSESSEE APPEAL 4. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL I S AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE ACTION OF THE LD AO IN TREATING THE S HORT TERM CAPITAL GAINS OF RS. 11,05,41,076/- ON SALE OF SHARES AND SECURITIES HELD AS INVESTMEN T AS INCOME FROM BUSINESS OF TRADING IN SHARES AND SECURITIES IN THE FACTS AND CIRCUMSTANCE S OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE IS A REGISTERED STOCK BROKER AND BESIDES DERIVING BROKERING INCOME IT ALSO TRADES IN SHARES AND SECURITIES. THE ASSESSEE WAS HAVING DUAL PORTFOLIO I.E SHARES HELD AS INVESTMENTS AND SHARES USED FOR TRADING. FOR THIS PURPOSE, THE ASSESSEE MAINTAINED TWO SEPARATE ACCOUNTS IN ITS BO OKS OF ACCOUNTS BY CLEARLY BIFURCATING THE SHARES THAT ARE HELD AS INVESTMENTS AND SHARES THAT ARE HELD FOR TRADING BY GIVING INDEPENDENT AND SEPARATE CODES FOR EACH CATEGORY. THE ASSESSE E TRANSFERRED THE FOLLOWING SHARES FROM ITS TRADING STOCK TO INVESTMENTS:- NAME OF THE SCRIP DATE OF QTY AMOUNT PURCHASE RELIANCE 23.02.2005 100000 54605000 IFCI SETTLEMENT NO. 2005023 4.2.2005 2000 SETTLEMENT NO. 2005024 7.2.2005 398000 SETTLEMENT NO. 2005050 15.3.2005 11000 SETTLEMENT NO. 2005058 28.3.2005 100000 ------------- 511000 6796300 3 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. IDBI 18.1.2005 150000 13672500 ULTRATECH CEMENT SETTLEMENT NO. 2004227 25.11.2004 10000 SETTLEMENT NO. 2004251 30.12.2004 50000 SETTLEMENT NO. 2005018 28.01.2005 30000 SETTLEMENT NO. 2005048 11.03.2005 20000 ------------- 110000 38057800 AFTEK INFOSYS TEM 7.3.2005 6500 505700 ------------------------------- TOTAL 877500 113637300 ------------------------------- ADMITTEDLY, THESE SHARES WERE TRANSFERRED ON 2.4.20 05 AT THE LOWER OF AVERAGE RATE OR MARKET RATE. EXCEPT THE SHARES OF ULTRATECH CEMENT LTD , WHERE THE AVERAGE COST WAS LESSER THAN THE MARKET RATE, ALL THE SHARES WERE TRANSFERRED FROM T RADING STOCKS TO INVESTMENTS ONLY AT THE MARKET RATES PREVAILING AS ON 31.3.2005. IT WAS CL AIMED THAT THERE WAS NO SIGNIFICANT VARIATION IN THE MARKET RATES BETWEEN 31.3.2005 AND 2.4.2005. THE LD AO OBSERVED THAT THE ASSESSEE ALWAYS HAD SEP ARATE PORTFOLIO OF TRADING STOCK AND INVESTMENT SHARES AND ON 2.4.2005, IT PASSED A RESO LUTION BY WHICH THE AFORESAID SHARES WERE TRANSFERRED FROM TRADING STOCK TO INVESTMENTS. TH E LD AO MADE THE FOLLOWING OBSERVATIONS IN HIS ORDER:- A) ALL THE SHARES OF ULTRATECH CEMENT LTD WHICH WER E TRANSFERRED FROM TRADING TO INVESTMENTS WERE SOLD WITHIN 1 MONTH FROM SUCH TRANSFER AND SHO RT TERM CAPITAL GAINS WERE BOOKED. HOWEVER, ASSESSEE AGAIN PURCHASED SHARES OF THE SAM E COMPANY IN JULY 2005 WHICH WAS SOLD IN NOVEMBER 2005 UNDER TRADING STOCK CATEGORY WHICH RESULTED IN A LOSS. THE ASSESSEE EARNED DIVIDEND OUT OF HOLDING OF SHARES PURCHASED DURING JULY ONLY. B) THE SHARES OF IDBI TRANSFERRED FROM TRADING TO I NVESTMENTS WERE SOLD WITHIN 4 MONTHS ON 4.8.2005. SOME MORE SHARES OF IDBI WERE PURCHASED ON 3.8.2005 AND WERE SOLD WITHIN 2 DAYS ON 5.8.2005. THE PURCHASE ON 3.8.2005 WAS MADE UND ER INVESTMENT PORTFOLIO AND THE SALE 4 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. RESULTED AN INVESTMENT GAIN OF RS 35 LAKHS APPROX. NO DIVIDEND WAS DISCLOSED AS RECEIVED OUT OF THE HOLDING. C) THE SHARES OF IFCI TRANSFERRED FROM TRADING TO I NVESTMENTS WERE PARTLY SOLD WITHIN 3 DAYS OF THE TRANSFER. THE BALANCE WAS SOLD WITHIN 4 MONTHS AND ASSESSEE DID NOT HOLD IT FOR EARNING OF ANY DIVIDEND. THE SAME RESULTED IN INVESTMENT GAIN OF RS 19 LAKHS. D) THE SHARES OF AFTEX INFOSYSTEM TRANSFERRED FROM TRADING TO INVESTMENTS WERE SOLD IN AUGUST. NO DIVIDEND WAS EARNED FOR HOLDING OF THESE SHARES. FURTHER SHARES WERE PURCHASED IN MAY 2005 WERE ALSO DISCLOSED AS INVESTMENT SHARES, BUT WERE SOLD WITHIN TWO AND HALF MONTHS THAT IS IN AUGUST 2005. THESE SALES ALSO RESULTED IN HUGE CAPITAL GAINS TO THE TUNE OF RS 13 LAKHS APPROX. E) THE SHARES OF ZEE TV NETWORK WERE PURCHASED UNDE R INVESTMENT PORTFOLIO IN FEB 2006 AND SOLD WITHIN 15 DAYS RESULTING IN CAPITAL GAINS OF M ORE THAN RS 24 LAKHS. NO DIVIDEND WAS RECEIVED FROM HOLDING OF THESE SHARES. ACTUALLY, A SSESSEE RECEIVED DIVIDEND FOR HOLDING ZEE SHARES AS TRADING STOCK, WHICH WERE SEPARATELY PURC HASED IN SEPT 2005 AND ALSO SOLD IN SEPT 2005 RESULTING IN TRADING LOSS OF RS. 99,427/-. F) THE SHARES OF DCHL, BHARTI SHIPYARD AND ENGINEER S INDIA WERE ALL PURCHASED UNDER INVESTMENT PORTFOLIO AND SOLD WITHIN 1 MONTH OF SUC H PURCHASE, NEVER WAITING FOR ANY DIVIDEND AND GETTING RESULTING GAINS. G) THE SHARES OF MIDDAY MULTIMEDIA AND SANDESH LTD WERE ALSO BOUGHT UNDER INVESTMENT PORTFOLIO AND SOLD WITHIN A MONTH RESULTING IN GAIN S. ASSESSEE DID NOT RECEIVE ANY DIVIDEND OUT OF THEM. BASED ON THE ABOVE OBSERVATIONS, THE LD AO FOLLOWED THE CBDT CIRCULAR NO. 4 OF 2007 AND HELD THAT THE SHARES HELD IN INVESTMENT PORTFOLIO W ERE NOT HELD BY THE ASSESSEE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. IT WAS OBSERVED THAT T HE SHARES HELD UNDER TRADING PORTFOLIO RESULTED IN LOSSES AND WHEREAS THE SHARES HELD IN I NVESTMENT PORTFOLIO, RESULTED IN GAINS. IT WAS FURTHER OBSERVED THAT NOT A SINGLE SHARE WHICH HAD BEEN PURCHASED DURING THE YEAR OR CONVERTED 5 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. OUT OF TRADING STOCK WERE HELD FOR LONG TERM PURPOS ES. THE LD AO FURTHER OBSERVED THAT THOUGH THE ASSESSEE HAD SQUARED UP ITS BORROWED CAPITAL OF RS. 18.74 CRORES BY THE END OF THE YEAR, BUT DURING THE YEAR, IT HAD BORROWED A SUM OF RS. 18.9 CRORES AS SHORT TERM BORROWINGS FROM ITS DIRECTOR AND PAID INTEREST OF RS. 1.39 CRORES FOR T HE YEAR. HE FURTHER OBSERVED THAT IT IS DIFFICULT TO SEGREGATE ANY AMOUNT OF BORROWING AS DIRECTLY LI NKED TO INVESTMENT. BASED ON THESE OBSERVATIONS, THE LD AO CONCLUDED THAT THE SHARES H ELD IN INVESTMENT PORTFOLIO WHICH RESULTED IN SHORT TERM CAPITAL GAINS HAD TO BE TAXED AS INCOME FROM BUSINESS. HOWEVER, HE ACCEPTED THE FACT THAT THERE IS NO BAR FOR HAVING BOTH TRADING A ND INVESTMENT PORTFOLIO BY AN ASSESSEE AND ACCORDINGLY ACCEPTED THE LONG TERM CAPITAL GAINS RE PORTED BY THE ASSESSEE AS SUCH AS THESE SHARES WERE HELD FOR A LONG PERIOD OF TIME. 4.2. IN APPEAL, THE ASSESSEE OBJECTED TO THE TREAT MENT OF THE LD AO BY TREATING RS. 11,05,41,076/- AS INCOME FROM BUSINESS AS AGAINST T HE CAPITAL GAIN REPORTED BY THE ASSESSEE. THE ASSESSEE ALSO CONTESTED THE ACTION OF THE LD AO IN CHANGING THE VALUATION OF STOCK DISCLOSED AS INVESTMENT AND CONSIDERING SUCH VALUE AT RS. 4,5 5,86,196/- AND CONSEQUENTLY COMPUTING THE TRADING PROFIT ON SHARES AT RS. 11,05,41,076/-. HOWEVER, THE LD CITA DID NOT APPRECIATE THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE TREATMEN T OF THE LD AO. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCE S OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONTINUING THE AO'S ACTION IN TR EATING THE SHORT TERM CAPITAL GAIN OF RS. 11,05,41,076/- ON SALE OF SHARES & SECURITIES HELD AS 'INVESTMENT' AS INCOME FROM THE BUSINESS OF TRADING IN SHARES & SECURITIES WITHOUT ANY BASIS AN D WITHOUT CONSIDERING THE FACTS ON RECORD THAT THE ASSESSEE, A REGISTERED SHARE BROKER, WAS NOT ON LY A TRADER BUT ALSO AN INVESTOR IN SHARES & SECURITIES. ACTIONS OF THE A.O AND THE LD. CIT(A) W ERE WHOLLY ARBITRARY, UNREASONABLE, UNCALLED FOR AND BAD IN LAW. 5.1. THE LD AO REITERATED THE ARGUMENTS MADE BEFOR E THE LOWER AUTHORITIES AND VEHEMENTLY RELIED ON THE WRITTEN SUBMISSIONS FILED BY THE ASSE SSEE BEFORE THE LD CITA WHICH ARE ENCLOSED IN PAGES 1 TO 24 OF THE PAPER BOOK. APART FROM TH AT, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS ARGUMENTS:- A) CIT VS EXPRESS SECURITIES LTD REPORTED IN (2014) 364 ITR 488 (DEL) 6 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. B) ACIT VS R RAMAN (HUF) REPORTED IN (2011) 14 TAXM ANN.COM 76 (CHENNAI TRIBUNAL) DATED 5.8.2011 C) CIT VS JUBILANT SECURITIES P LTD IN ITA NO. 588 OF 2011 DATED 31.3.2011 RENDERED BY HONBLE DELHI HIGH COURT D) CHATURANAN INDUSTRIES LTD VS ACIT IN ITA NO. 479 3/DEL/2010 FOR ASST YEAR 2006-07 DATED 25.2.2014 (DELHI TRIBUNAL) E) ACIT VS BRIGHT STAR INVESTMENT P LTD REPORTED IN (2008) 24 SOT 288 (MUMBAI TRIBUNAL) F) SUKARMA FINANCE LTD VS ACIT IN ITA NOS. 3588 & 3 589/DEL/2010 FOR ASST YEARS 2006-07 & 2007-08 DATED 2.5.2014. G) CIT VS GOPAL PUROHIT REPORTED IN 228 CTR 582 (BO M) 5.2. IN RESPONSE TO THIS, THE LD DR ARGUED THAT THE ACTION OF THE ASSESSEE IN TRANSFERRING CERTAIN SHARES FROM TRADING PORTFOLIO TO INVESTMENT PORTFOLIO IS A MERE TAX AVOIDANCE MEASURE. THE INTENTION OF THE ASSESSEE IS ONLY TO TRADE IN S HARES AND NORMALLY INVESTMENTS WOULD BE RETAINED ONLY RETURN IS DERIVED THEREFROM AND WHERE AS BUSINESS ASSETS WOULD BE ROTATED FOR MAKING PROFITS. EVEN THE RECENT CIRCULAR NO. 6/20 16 DATED 29.2.2016 STATES THAT FOR SHORT TERM CAPITAL GAINS, DEPARTMENT COULD STILL INTERFERE AND RELY ON EARLIER CIRCULARS AND CASE LAWS WITH PRINCIPLES LAID DOWN THEREON. THE RELIANCE PLACED BY THE LD AR ON THE DECISION OF DELHI HIGH COURT IN 364 ITR 488 SUPRA WERE FACTUALLY DISTINGUI SHABLE AS THE SHARES IN THAT CASE WERE HELD FOR A LONG TIME AND OFFERED AS LONG TERM CAPITAL GA INS AND IT WAS HELD THAT THE AMENDMENT IN OCT 2004 IN THE ACT CANNOT BE THE SOLE CRITERION FOR SH IFTING OF HEADS OF INCOME AS THE INTENTION OF THE ASSESSEE IS IMPORTANT. THE CASE LAW RELIED UPO N IS IN THE CONTEXT FOR TAXING LTCG AND NOT STCG. SIMILARLY ALL THE CASE LAWS RELIED ON BY THE LD AR ARE ONLY ON THE TAXABILITY OF LTCG AND STCG. HENCE HE STATED THAT NONE OF THE CASE LA WS RELIED BY THE LD AR ARE APPLICABLE TO THE FACTS OF THE CASE. WITH REGARD TO THE INDEPENDENT CODES FOR TRADING AND INVESTMENT PORTFOLIO STATED TO HAVE BEEN MAINTAINED BY THE ASSESSEE, THE LD DR ARGUED THAT THE CODES ARE ONLY GIVEN BY THE ASSESSEE TO SUIT HIS CONVENIENCE AND THEY AR E NOT THE CODES MAINTAINED BY THE STOCK EXCHANGES. HENCE THE SAME ARE CHANGEABLE AS PER TH E WHIMS AND FANCIES OF THE ASSESSEE. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE COMP RISING OF WRITTEN SUBMISSIONS (PAGES 1 TO 24) ; DETAILS OF SHARES TRANSFERRED FROM STOCK TO I NVESTMENTS (PAGE 25) ; COPY OF STOCK VALUATION 7 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. REPORT (PAGE 26) ; DETAILS OF PROFIT ON INVESTMENT ACCOUNT (PAGES 27 TO 28) ; DETAILS OF SHORT TERM CAPITAL GAIN (PAGES 29 TO 30) ; COPY OF BOARD RESOL UTION DATED 2.4.2005 (PAGE 31) ; COPY OF BOARD RESOLUTIONS FROM 23.1.2003 TO 24.2.2005 (PAGE S 32 TO 52) ; COPY OF BOARD RESOLUTIONS FROM 2.4.2005 TO 3.3.2006 (PAGES 53 TO 59) ; COPY O F COMPUTATION OF INCOME FOR AY 2006-07 (PAGES 60 TO 61) ; COPY OF TAX AUDIT REPORT FOR AY 2006-07 (PAGES 62 TO 74) ; COPY OF AUDITED ACCOUNTS FOR THE YEAR ENDED 31.03.2006 (PAGES 75 TO 91) ; COPY OF FORM 10DB ALONG WITH DETAILS OF STT (PAGES 92 TO 97) AND COPY OF LEDGER ACCOUNTS OF PENALTY CHARGES TO STOCK EXCHANGE ALONG WITH RELEVANT DOCUMENTS (PAGES 98 TO 102). 5.4. WE FIND THAT THE DECISION TO HOLD DUAL PORTF OLIO OF TRADING IN SHARES AS WELL AS HOLDING THE SHARES OF CERTAIN COMPANIES UNDER INVESTMENT CATEGORY WAS TAKEN BY THE ASSESSEE WAY BACK ON 20.5.2003 ITSELF VIDE BOARD RESOLUTION DATE D 20.5.2003 WHICH IS ENCLOSED IN PAGE 35 OF THE PAPER BOOK. WE FIND THAT THE DIRECTOR OF THE ASSESSEE COMPANY HAD BEEN DULY AUTHORIZED TO HOLD DUAL AND SEPARATE PORTFOLIO. THE FACT OF ASS ESSEE HOLDING DUAL PORTFOLIO IS NOT DISPUTED BY THE LD AO. IN FACT, WE FIND THAT THE LD AO HAD ACC EPTED THE LONG TERM CAPITAL GAINS REPORTED BY THE ASSESSEE FROM INVESTMENT PORTFOLIO. HAVING DO NE SO, HOW CAN THE LD AO DISPUTE THE SHORT TERM CAPITAL GAINS REPORTED BY THE ASSESSEE FROM TH E INVESTMENT PORTFOLIO. IT IS TRUE THAT THE SHARES HELD IN INVESTMENT CATEGORY WERE SOLD IN PAR T OR IN FULL BY THE ASSESSEE AND IMMEDIATELY THE SHARES OF THE SAME COMPANIES WERE PURCHASED IN THE TRADING PORTFOLIO. THIS ACTION OF THE ASSESSEE COULD NEITHER BE FAULTED WITH NOR ANY MALI GN INTENTION COULD BE ATTRIBUTED TOWARDS THE SAME. THE ASSESSEE COULD REPURCHASE THE SHARES OF THE SAME COMPANY DUE TO VARIOUS REASONS. THE ASSESSEE HAS EVERY RIGHT TO EXIT AT THE PROFITA BLE MOMENT FROM A PARTICULAR SCRIP EITHER IN PART OR IN FULL AND DUE TO SENTIMENTAL REASONS AND THE SAME COULD AGAIN BE REPURCHASED BY AN ASSESSEE. THESE ACTIONS CANNOT BE QUESTIONED JUST BECAUSE IT RESULTS IN AN INCIDENTAL TAX LOSS TO THE REVENUE. MOREOVER, EVEN IN BUSINESS, THE ASSES SEE WOULD NOT DELIBERATELY INDULGE IN A TRANSACTION TO INCUR LOSS. HENCE THE ALLEGATION CA ST ON THE ASSESSEE IS NOT APPRECIATED. IT IS WELL SETTLED THAT IT IS FOR THE ASSESSEE TO DECIDE AS TO WHETHER A PARTICULAR SCRIP IS TO BE RETAINED UNDER INVESTMENT PORTFOLIO OR IN TRADING PORTFOLIO AND TH E REVENUE CANNOT STEP INTO THE SHOES OF THE ASSESSEE IN THAT REGARD AND DECIDE WHAT ACTION SHOU LD HAVE BEEN TAKEN BY A PERSON IN THE GIVEN SET OF FACTS AND CIRCUMSTANCES. THE ASSESSEE KNOW S ITS INTEREST BEST. IT CANNOT BE DISPUTED THAT 8 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. THE ASSESSEE HAD ALSO REPORTED NET PROFIT FROM TRAD ING PORTFOLIO OF TRADING IN SHARES AND SECURITIES TO THE TUNE OF RS. 3,38,44,526/- IN ITS RETURN OF INCOME WHICH CANNOT BE IGNORED. THE ASSESSEE HAS ALSO REPORTED SHORT TERM CAPITAL GAINS OF RS. 6,31,19,616/- IN ITS RETURN OF INCOME. THIS IS A TELLING INSTANCE OF THE INTENTION OF THE ASSESSEE WHICH IS PROVED BEYOND DOUBT. WE FIND THAT THE ASSESSEE HAD PROVIDED DETAILED WORKIN GS OF PROFIT DERIVED FROM INVESTMENTS IN RESPECT OF SHARES PURCHASED AND SOLD DURING THE YEA R FOR EACH SCRIP IN INVESTMENT PORTFOLIO TO THE TUNE OF RS. 4,26,10,595/- WHICH IS ENCLOSED IN PAGE 28 OF THE PAPER BOOK. WE ALSO FIND THAT THE ASSESSEE HAD PROVIDED DETAILED WORKINGS OF SHOR T TERM CAPITAL GAINS FROM INVESTMENT PORTFOLIO OF EACH SCRIP CLEARLY MENTIONING THE PERI OD OF HOLDING OF EACH SCRIP. 5.5. WE FIND THAT THE ASSESSEE HAD PURCHASED THE SC RIPS WITH A CLEAR INTENTION OF HOLDING IT AS INVESTMENTS ONLY AS THE PERIOD OF HOLDING OF THESE SHARES ARE ALSO COMPARATIVELY LARGER AND THE VERSION OF THE LD AO THAT THE PERIOD OF HOLDING IS TOO SHORT GETS DEFEATED. WE FIND THAT THE ASSESSEE HAD INDEED HAD THE INTENTION OF EARNING DI VIDENDS BUT HAD ALSO PARALLELY CHOSEN TO EXIT FROM THE CERTAIN INVESTMENTS IN PROFITABLE SITUATIO NS WITHOUT WAITING FOR THE DIVIDENDS THEREON. WE ARE IN AGREEMENT WITH THE ARGUMENTS OF THE LEARN ED AR THAT JUST BECAUSE THE ASSESSEE HAD MADE PROFITS OUT OF ITS INVESTMENT ACTIVITIES, THE SAME CANNOT BE CONCLUDED THAT THE ASSESSEE HAD CARRIED ON WITH AN INTENTION TO DO BUSINESS. FOR TH AT MATTER, EVERY ASSESSEE WOULD ONLY TRY TO MAKE PROFITS OUT OF THEIR ACTIVITIES, BE IT INVESTM ENT OR BUSINESS. IN THE INSTANT CASE, THE ASSESSEE HAD REPORTED BOTH DIVIDEND INCOME AND OFFERED SHORT TERM AND LONG TERM CAPITAL GAINS ON THE INVESTMENT ACTIVITIES AND BUSINESS INCOME FOR TRADI NG ACTIVITIES. 5.6. WE ALSO FIND THAT THE LD AO HAD ACCEPTED THE LONG TERM CAPITAL GAINS REPORTED BY THE ASSESSEE. WE FIND THAT THE LD AO HAD NOT DISPUTED THE ASSESSEE HOLDING DUAL PORTFOLIO I.E BOTH TRADING AS WELL AS INVESTMENT PORTFOLIO. WE FIND THAT THE LD AO ALSO HAD STATED IN HIS ORDER THAT THE ASSESSEE HAS BEEN CONSISTENTLY MAINTAINING THIS DUAL PORTFOLIO IN HIS BOOKS AND ASSESSED AS SUCH. THE LD AR ALSO FILED THE COPY OF THE AUDITED FINANCIAL STATEMENTS TOGETHER WITH THE COMPUTATION OF TOTAL INCOME FOR THE YEARS ENDED 31. 3.2004 & 31.3.2005 WHEREIN THE ASSESSEE HAD DECLARED BOTH BUSINESS INCOME AS WELL AS CAPITA L GAINS FROM DEALING IN SHARES AND SECURITIES. WE ALSO FIND THAT FROM THE ASSESSMENT ORDER FRAMED FOR THE ASST YEAR 2005-06 U/S 143(3) OF THE ACT DATED 31.12.2007 THAT THE LD AO H AD ACCEPTED THE CLAIM OF SHORT TERM CAPITAL 9 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. GAINS AND LONG TERM CAPITAL GAINS OF THE ASSESSEE. HENCE WE HOLD THAT THE PRINCIPLES OF CONSISTENCY SHOULD BE FOLLOWED IN THE INSTANT CASE. THOUGH THE PRINCIPLE OF RESJUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, THE PRINCIPLE OF CONSISTENCY CANNOT BE GIVEN A GO BY. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS CIT REPORTED IN 193 ITR 321 ( SC) , WHEREIN IT WAS HELD THAT : AS WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A U NIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND THE PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING TH E ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YE AR. 5.7. WHETHER INTRODUCTION OF CONCESSIONAL RATE OF TAX ON SHORT TERM CAPITAL GAINS AND EXEMPTION OF LONG TERM CAPITAL GAINS PURSUANT TO IN TRODUCTION OF SECURITIES TRANSACTION TAX (STT) WOULD CHANGE THE CHARACTER OF THE TRANSACTION WE FIND THAT THE ENTIRE GAMUT OF TRANSACTIONS ARE T O BE VIEWED IN THE CONTEXT OF DOMINANT INTENTION OF THE ASSESSEE WHETHER TO HOLD A PARTICU LAR SCRIP IN INVESTMENT PORTFOLIO OR IN TRADING PORTFOLIO. WE FIND THAT THE LEVY OF SECURITIES TRAN SACTION TAX HAS BEEN INTRODUCED IN THE STATUTE WITH EFFECT FROM 1 ST OCTOBER 2004 RELEVANT TO ASST YEAR 2005-06, WHEREI N IF A SALE OF SHARES TRANSACTION IS ROUTED THROUGH A RECOGNIZED STOCK EX CHANGE AND SECURITIES TRANSACTION TAX IS SUFFERED BY THE ASSESSEE, THEN THE LONG TERM CAPITA L GAINS ARISING ON SUCH SALE WOULD BE EXEMPT U/S 10(38) OF THE ACT. SIMILARLY WITH EFFECT FROM 1 .4.2005, THE SHORT TERM CAPITAL GAINS, IF SUBJECTED TO LEVY OF SECURITIES TRANSACTION TAX, WO ULD BE LIABLE FOR CONCESSIONAL RATE OF TAX AS AGAINST THE NORMAL RATE OF TAX @ 30%. THIS BENEFIT HAS BEEN ADMITTEDLY CONFERRED ON THE INVESTORS BY THE LEGISLATURE IN ITS WISDOM IN ORDER TO GIVE IMPETUS TO THE CAPITAL MARKETS WHICH WOULD CONTRIBUTE LARGELY TO THE ECONOMIC GROWTH OF OUR COUNTRY. HENCE THE INTENTION BEHIND GRANTING EXEMPTION FOR LTCG AND TAXING STCG AT CONC ESSIONAL RATES WHEN STT IS SUFFERED SHOULD BE VIEWED BY APPLYING THE RULE OF PURPOSIV E CONSTRUCTION. JUST BECAUSE FROM 1 ST OCTOBER 2004 ONWARDS, CERTAIN TAX BENEFITS HAVE BEE N GIVEN IN RESPECT OF CAPITAL GAINS, THAT CANNOT, IN ANY WAY, LEAD TO AN ASSUMPTION OR PRESUM PTION THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES WAS THAT OF A TRADER AND NOT OF AN INVESTOR. THE TREATMENT OF THE INVESTMENT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS ALSO A RELEVANT GUIDING FACTOR. THE ISSUE OF TREATMENT OF INCOME FROM SHARE TRANSACTION AS SH ORT TERM CAPITAL GAINS OR BUSINESS INCOME 10 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. HAS IN FACT ARISEN AFTER THE AMENDMENT BROUGHT WITH FINANCE ACT 2004 WITH EFFECT FROM 1.10.2004. IT IS AN ADMITTED FACT ON RECORD THAT PR IOR TO AMENDMENT WHEN THE TAX ON SHORT TERM CAPITAL GAINS WAS AT PAR WITH BUSINESS INCOME, THE DEPARTMENT HAS BEEN CONSISTENTLY ACCEPTING THE TREATMENT OF INCOME BY THE ASSESSEE AS CAPITAL GAINS. MERELY BECAUSE THE RATE OF TAX HAS BEEN REDUCED IN RESPECT OF SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS HAVE BEEN MADE EXEMPT DURING THE YEAR BY WAY OF AN AMENDMENT TO TH E PROVISIONS, THAT ITSELF, CANNOT BE A GROUND FOR THE LEARNED AO TO DEPART FROM ITS CONSIS TENT STAND OF TREATING THE ASSESSEE AS AN INVESTOR AND THEREBY TO CHARGE THE INCOME EARNED BY THE ASSESSEE FROM SHARE TRANSACTIONS AS BUSINESS INCOME. MOREOVER, AS STATED EARLIER, IT I S NOT IN DISPUTE THAT THE LD AO HIMSELF HAD ADMITTED IN HIS ORDER THAT THE ASSESSEE HAS BEEN MA INTAINING DUAL PORTFOLIOS I.E TRADING AND INVESTMENT PORTFOLIO IN THE YEAR UNDER APPEAL AND A LSO IN THE EARLIER YEARS. 5.8. DUAL PORTFOLIO - WHETHER PERMITTED WE ALSO FIND THAT NOTHING PROHIBITS AN ASSESSEE FRO M HOLDING DUAL PORTFOLIOS I.E. (1) SHARES HELD FOR INVESTMENT AND (2) SHARES HELD FOR TRADING PURP OSES. IT IS NOT IN DISPUTE THAT IN THE INSTANT CASE, THE ASSESSEE HAD MAINTAINED DUAL PORTFOLIOS I N ITS BOOKS OF ACCOUNTS AND HAD REPORTED CAPITAL GAINS AND BUSINESS INCOME SEPARATELY AS PER THE CONSISTENT PRACTICE FOLLOWED BY THE ASSESSEE OVER THE YEARS AND ACCEPTED BY THE REVENUE IN THE EARLIER YEARS. IT IS WELL SETTLED THAT IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IN THE INSTANT CASE, THE ASSESSEE HAD DULY CREATED A S EPARATE CODE FOR SHARES HELD FOR INVESTMENT PURPOSES AND SEPARATE CODE FOR SHARES HELD FOR TRAD ING AND THE DIRECTOR OF THE ASSESSEE COMPANY SHRI SURESH KUMAR SARAF WAS ALSO DULY AUTHORIZED BY THE BOARD RESOLUTION DATED 20.5.2003 TO MAINTAIN SEPARATE PORTFOLIOS AND DELINK THE TRADING AND INVESTMENT TRANSACTIONS. THE ASSESSEE HAD PRESENTED THE ACCOUNTS AND HAD ALSO STATED BEFO RE THE LD AO THAT IT HAD INDEED MAINTAINED SEPARATE CODES FOR SHARES HELD AS INVESTMENTS AND T HAT HELD AS TRADING. THIS FACT IS ALSO MENTIONED BY THE LD AO IN HIS ASSESSMENT ORDER. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTIC ULAR ITEM IS HELD AS INVESTMENT OR STOCK IN TRADE, THEN ONUS WOULD SHIFT TO REVENUE TO PROVE TH AT APPARENT IS NOT REAL. IN THE INSTANT CASE, WE FIND FROM THE DETAILS IN THE PAPER BOOK THAT THE AS SESSEE HAD DULY DISCHARGED ITS PRIMARY ONUS OF 11 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. DEMARCATING THE SCRIPTS HELD FOR INVESTMENT AND FOR TRADING AND THE RESULTANT GAINS DERIVED THEREFROM. EVEN THE CBDT CIRCULAR NO. 4 OF 2007 DA TED 15.6.2007 ENVISAGES THE PRACTICE OF ASSESSEE'S MAINTAINING DUAL PORTFOLIOS. WE ALSO FIN D THAT THE DECISION WAS RENDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GOPAL PUROHIT REPORTED IN (2011) 336 ITR 287 (BOM) WHEREIN THE ASSESSEE HAD MAINTAINED DUAL PORTFOLIOS AND ULTIMATELY THE COURT HELD THAT THE RESULTANT GAINS FROM INVESTMENT ACTIVITY W OULD BE ASSESSABLE AS CAPITAL GAINS AND NOT BUSINESS INCOME. WE ALSO FIND THAT THE CBDT IN IT S INSTRUCTION NO. 1827 DATED 31.8.1989 HAS LAID DOWN CERTAIN CRITERIA TO DETERMINE WHETHER AN ACTIVITY OF PURCHASE AND SALE OF SHARES IS IN THE NATURE OF TRADING ACTIVITY OR INVESTMENT ACTIVI TY. ONE OF THE CRITERIA LAID DOWN IS THE TREATMENT GIVEN IN THE BOOKS IS INDICATIVE OF ASSES SEE'S INTENTION WHETHER TO HOLD THE SHARES WITH A VIEW TO EARN DIVIDEND AND LONG TERM APPRECIATION OR WITH A VIEW TO CARRYING ON AS BUSINESS. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT REJ ECTED BY THE LD AO. 5.9. INTENTION OF THE ASSESSEE WE FIND THE INTENTION OF THE ASSESSEE TO MAINTAIN T WO INDEPENDENT PORTFOLIOS I.E. ONE FOR INVESTMENT PURPOSES AND ONE FOR TRADING PURPOSES FR OM THE VERY BEGINNING IS QUITE EVIDENT FROM THE BOOKS OF ACCOUNTS WHEREIN ASSESSEE HAD SEP ARATE ENTRIES IN ITS LEDGER ACCOUNTS AT THE TIME OF EACH TRANSACTION I.E. AT THE TIME OF PURCHA SE ITSELF. THIS PRACTICE HAS NOT BEEN FOUND FAULT BY THE REVENUE IN THE EARLIER ASSESSMENT YEARS EVEN IN SCRUTINY PROCEEDINGS. THE SHARES TRANSFERRED FROM TRADING TO INVESTMENT ACCOUNT WERE HELD FOR A LONG TIME WHICH SHOWS THAT THE ASSESSEE INTENDED TO HOLD THEM AS INVESTMENTS ONLY. THESE SHARES WERE ALSO TRANSFERRED AT THE LOWER OF AVERAGE COST OR MARKET RATES WHICH FACT IS ALSO NOT DISPUTED AND IS QUITE EVIDENT FROM THE WORKINGS SUBMITTED FOR THE SAME IN THE PAPER BO OK. MOREOVER, AS EARLY AS ON 2.4.2005 ( IE.AT THE BEGINNING OF THE YEAR ITSELF) THE ASSESSE E HAD DULY EXPRESSED ITS INTENTION BY PASSING A BOARD RESOLUTION FOR TRANSFERRING CERTAIN SHARES IN TRADING ACCOUNT TO INVESTMENT PORTFOLIO. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. S. RAMAAMIRTHAN REPORTED IN (2008) 217 CTR 206 (MAD) WHILE DISTINGUISHING TRADING AND INVESTMENT, OBSER VED THAT THE INTENTION OF THE ASSESSEE IS RELEVANT TO DETERMINE WHETHER AN ASSESS EE IS CARRYING ON THE BUSINESS IN SHARES OR INVESTMENTS. THE INITIAL INTENTION OF THE ASSESSEE IN THE INSTANT CASE IS PROVED BEYOND DOUBT FROM THE MANNER OF MAINTAINING TWO SEPARATE PORTFOL IOS I.E. (1) FOR INVESTMENT PURPOSES AND (2) 12 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. FOR TRADING PURPOSES. THE LEARNED AR ARGUED THAT IN RESPECT OF SHARES RETAINED UNDER 'INVESTMENT CATEGORY' THE ASSESSEE HAD TAKEN DUE DE LIVERY OF SHARES ON ITS PURCHASE AND GIVEN DUE DELIVERY OF SHARES ON ITS SALE. THE LEARNED AR FURTHER INFORMED THAT THE ASSESSEE HAD ALSO KEPT SEPARATE RECORDS TO RECORD THE TRANSACTIONS OF EACH CATEGORY I.E DELIVERY BASED AND NON- DELIVERY BASED. IT IS SETTLED LAW THAT A PARTICULAR INCOME IS FROM BUSINESS OR FROM INVESTMENT MUST BE DECIDED ACCORDING TO THE GENERAL COMMON SEN SE VIEW OF THOSE WHO DEAL WITH THOSE MATTERS IN THE PARTICULAR CIRCUMSTANCES. THE MOST E XCRUCIATING FACTOR TO BE LOOKED INTO AT THIS JUNCTURE IS THE CONDUCT OF THE ASSESSEE. IN THE I NSTANT CASE, THE BONA FIDE CONDUCT OF THE ASSESSEE IS PROVED BEYOND DOUBT FROM THE MANNER IN WHICH IT HAD MAINTAINED THE DUAL PORTFOLIOS IN ITS BOOKS BY PROVING ITS INTENTION FR OM THE TIME OF PURCHASE OF THE SCRIP, WITHOUT KNOWING ABOUT THE FUTURE INCREASE / DECREASE IN THE SHARE PRICES, BY MAINTAINING A SEPARATE CODE FOR INVESTMENT AND TRADING PORTFOLIOS AND BY R EPORTING BOTH BUSINESS INCOME AND CAPITAL GAINS. THE MOST EXCRUCIATING FACTOR IS THAT THE L D AO DID NOT BOTHER TO DISTURB THE CLAIM OF EXEMPTION FOR LONG TERM CAPITAL GAINS OF THE ASSESS EE. 5.10. WE ALSO FIND THAT THE HON'BLE CALCUTTA HIGH C OURT IN THE CASE OF CIT V. H K FINANCIERS (P.) LTD REPORTED IN (2015) 61 TAXMANN.COM 175 (CAL ) FOR THE ASST YEAR 2007-08 HAD HELD AS BELOW:- '3. THE ASSESSING OFFICER HAS LAID STRESS ON MOTIVE . TO BEGIN WITH MOTIVE IS SOMETHING, WHICH IS LOCKED IN THE MIND OF THE PERSON. NO DIRECT EVIDENC E AS REGARDS MOTIVE IS POSSIBLE. MOTIVE CAN BE INFERRED FROM THE CONDUCT OF THE PERSON CONCERNED B UT THAT IS BOUND TO REMAIN AN INFERENCE, WHICH MAY OR MAY NOT BE CORRECT. WE HAVE TODAY DICTATED A JUDGMENT IN THE CASE OF CIT V. MERLIN HOLDING (P.) LTD. [IT APPEAL NO. 101 OF 2011, DATED 12-5-2015] WHEREIN THE FOLLOWING VIEWS HAVE BEEN EXPRESSED BY US: 'FROM THE TENOR OF THE SUBMISSIONS MADE BY MR. SARA F NOTED ABOVE, IT APPEARS THAT THE CASE OF THE REVENUE IS THAT IN THE FACTS OF THE CASE THE FINDIN G THAT THE INCOME WAS EARNED FROM INVESTMENT COULD NOT HAVE BEEN RECORDED. IF THAT IS THE PROPOS ITION THEN IT IS FOR THE REVENUE TO SHOW THAT SUCH A FINDING IS NOT POSSIBLE IN LAW. THAT WAS NOT EVEN SUGGESTED. WHAT REMAINS THEN IS A QUESTION OF APPRECIATION OF EVIDENCE, WHICH HAS ALREADY BEEN DO NE. NO FRUITFUL PURPOSE IS LIKELY TO BE SERVED BY REMANDING THE MATTER. WE DO NOT FIND ANY ISSUE, WHICH HAS REMAINED UNATTENDED. FOR THE AFORESAID REASONS, WE HOLD THAT THE JUDGMENT UNDER CHALLENGE IS NOT PERVERSE.' 4. THE JUDGMENT IN THE CASE OF DALHOUSIE INVESTMENT TRUST CO. LTD. V. CIT (1968) 68 ITR 486 (SC) REFERRED BY THE ASSESSING OFFICER DOES NOT ASS IST THE REVENUE BECAUSE IN THAT ON APPRECIATION OF FACTS IT WAS FOUND AS FOLLOWS: 'ON THE FACTS, THAT THE APPELLANT DEALT WITH THE SH ARES OF MCLEOD AND CO. AND THE ALLIED COMPANIES AS STOCK-IN-TRADE, THAT THEY WERE IN FACT PURCHASED EVEN INITIALLY NOT AS INVESTMENTS BUT FOR THE 13 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. PURPOSE OF SALE AT A PROFIT AND THEREFORE THE TRANS ACTIONS AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. THE PROFIT DERIVED BY THE APPELLANT FROM THE SALE OF SHARES WAS THEREFORE A REVENUE RECEIPT AND AS SUCH LIABLE TO INCOME-TAX.' 5. THE FACTS OF THE CASE ARE NOT SHOWN TO BE SIMILA R WITH THOSE IN THE CASE OF DALHOUSIE INVESTMENT. 6. FOR THE AFORESAID REASONS, WE ARE OF THE OPINION THAT THE VIEWS EXPRESSED BOTH BY THE CIT AND THE TRIBUNAL FOR REASONS EXPRESSED THEREIN ARE A PO SSIBLE VIEW. IT IS, THEREFORE, NOT OPEN TO THE REVENUE TO CONTEND THAT THE VIEW TAKEN BY THE TRIBU NAL IS PERVERSE. QUESTION FORMULATED AT THE TIME OF ADMISSION OF THE APPEAL DOES NOT APPEAR TO HAVE BEEN CORRECTLY FORMULATED. THE QUESTION COULD ONLY BE, WHETHER THE VIEWS EXPRESSED UPON APPRECIAT ING THE FACTS AND CIRCUMSTANCES OF THE CASE WERE PERVERSE. THE QUESTION IS NOW FORMULATED AND I S ANSWERED IN THE NEGATIVE. THE APPEAL IS THUS DISMISSED.' 5.11. EXISTENCE OF BORROWED FUNDS THE NEXT POINT TO BE ADDRESSED IN THIS ISSUE IS THE EXISTENCE OF BORROWED FUNDS AND PAYMENT OF INTEREST THEREON BY THE ASSESSEE. WE FIND THAT THE LD AO HAD STATED THAT THE LOAN BORROWED DURING THE YEAR FROM ITS DIRECTOR BY THE ASSESSEE H AD BEEN REPAID BY THE ASSESSEE BEFORE THE END OF THE YEAR. WE FIND THAT THE LD AO ALSO OBSERVED THAT THE ASSESSEE HAD BOTH OWN FUNDS AND BORROWED FUNDS IN ITS KITTY AND IT IS DIFFICULT TO SEGREGATE ANY AMOUNT OF BORROWING AS DIRECTLY LINKED TO INVESTMENT. THE ASSESSEE HAD TRANSFERRED CERTAIN SHARES FROM ITS TRADING PORTFOLIO TO INVESTMENT PORTFOLIO AT THE BEGINNING OF THE YEAR I TSELF I.E ON 2.4.2005 PURSUANT TO BOARD RESOLUTION. MOREOVER, NO DISTURBANCE TO THE TREATM ENT GIVEN BY THE ASSESSEE WAS DONE BY THE LD AO IN THE SCRUTINY ASSESSMENT PROCEEDINGS FOR THE A SST YEAR 2005-06 AND CERTAIN STOCKS AS ON 31.3.2005 IN TRADING PORTFOLIO WERE CONVERTED INTO INVESTMENT ON 2.4.2005. NONE OF THESE SHARES WERE BOUGHT DURING THE YEAR UNDER APPEAL USI NG THE BORROWED FUNDS. AS STATED EARLIER, THE ASSESSEE IN THE INSTANT CASE HAD EXITED FROM TH E PARTICULAR SCRIP AFTER HOLDING IT FOR A REASONABLE PERIOD AT THE PROFITABLE MOMENT AND HAD MADE HUGE PROFITS DUE TO FAVOURABLE MARKET CONDITIONS. MOREOVER, THE LD AO HAD NOT BROUGHT AN Y NEXUS ON RECORD THAT INVESTMENTS WERE MADE OUT OF BORROWED FUNDS, INSTEAD, HE ONLY STATES THAT IT IS DIFFICULT TO IDENTIFY THE BORROWING UTILIZED FOR INVESTMENT. THE LD AR ARGUED THAT SI NCE SUFFICIENT MONIES WERE AVAILABLE TO THE ASSESSEE, IT THOUGHT IT FIT TO REPAY THE LOANS TO I TS DIRECTOR AND REDUCE THE INTEREST COMPONENT THEREON. WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LD AR IN THIS REGARD AND THAT THE ASSESSEE HAD TAKEN ITS DECISION IN A PRUDENT MANNER WHICH CA NNOT BE INTERFERED WITH, IN VIEW OF THE SETTLED LEGAL POSITION THAT ASSESSEE KNOWS ITS INTE REST BEST. 14 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. 5.12. FREQUENCY OF TRANSACTIONS IT IS NOBODYS CASE THAT THE SHARES HELD BY THE ASS ESSEE IN THE INVESTMENT PORTFOLIO WERE BOUGHT AND SOLD FREQUENTLY BY THE ASSESSEE. WE HAVE GONE THROUGH THE ENTIRE WORKINGS OF SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE IN RESPECT OF VARIOUS SCRIPS MAINTAINED IN INVESTMENT PORTFOLIO WHICH ARE ENCLOSED IN PAGES 29 & 30 OF TH E PAPER BOOK AND FIND THAT THE ASSESSEE HAD NOT DEALT WITH FREQUENT BUYING AND SELLING OF SHARE S. SINCE THE ASSESSEE IS MAINTAINING DUAL PORTFOLIO, THERE WERE PURCHASES OF THE SAME SHARES IN THE TRADING PORTFOLIO BY THE ASSESSEE WHICH WERE EARLIER SOLD BY IT FROM INVESTMENT PORTFOLIO. BUT IN INVESTMENT PORTFOLIO, THERE ARE NO FREQUENCY OF TRANSACTIONS BY THE ASSESSEE. HENCE T HE ADJUDICATION OF THIS ASPECT IN THE INSTANT CASE WOULD ONLY BE SUPERFLUOUS. 5.13. PERIOD OF HOLDING OF SHARES WE FIND THAT ONE OF THE MAIN ARGUMENTS OF THE REVEN UE SEEMS TO BE THE SHORTER DURATION FOR WHICH THE SHARES WERE HELD BY THE ASSESSEE. IN THIS REGARD, WE HAD GONE THROUGH THE ENTIRE DETAILS OF PROFIT ON SALE OF INVESTMENT SCRIP WISE CONTAINING THE DATE OF PURCHASE, NUMBER OF SHARES PURCHASED, PURCHASE PRICE, DATE OF SALE, SAL E PRICE AND RESULTANT BOOK PROFIT OR LOSS WHICH FORMS PART OF THE PAPER BOOK FILED BY THE ASSESSEE. THE SHARES TRANSFERRED FROM TRADING TO INVESTMENT ACCOUNT WERE HELD FOR A LONG TIME WHICH SHOWS THAT THE ASSESSEE INTENDED TO HOLD THEM AS INVESTMENTS ONLY. MOREOVER, AS EARLY AS O N 2.4.2005 ( I.E. AT THE BEGINNING OF THE YEAR ITSELF) THE ASSESSEE HAD DULY EXPRESSED ITS INTENTI ON BY PASSING A BOARD RESOLUTION FOR TRANSFERRING CERTAIN SHARES IN TRADING ACCOUNT TO I NVESTMENT PORTFOLIO. THESE FACTS ARE STARING ON US AND NOT DISPUTED. HENCE THERE CANNOT BE ANY ALLEGATION FOR REDUCTION OF TAXES THAT COULD BE RAISED ON THE ASSESSEE. THE FOLLOWING TABLE WOU LD PROVE THE HOLDING PERIOD OF SHARES OF EACH SCRIP :- (A) IFCI - 500000 SHARES 4 MONTHS (B) IDBI - 50000 SHARES 4 MONTHS (C )ULTRATECH CEMENT CO LTD - 110000 SHARES 20 DAYS 15 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. (D) AFTEK INFOSYSTEMS - 6500 SHARES - 4 M ONTHS 24000 SHARES 3 MONTHS (E) DCHL - 39000 SHARES - 1 MONTH (F) BHARTI SHIPYARD - 100000 SHARES 1 MONTH (G) SANDESH LTD - 20000 SHARES 6 DAYS (H) ENGINEERS INDIA - 25000 SHARES 1 MONT H (I) ZEE TV - 150000 SHARES 18 DAYS (J) RELIANCE INDUSTRIES LTD - 101600 SHARES - 10 MONTHS 100000 SHARES 12 MONTHS (K) RELIANCE CAPITAL VENTURES - 100000 SHARES 11 MONTHS 50000 SHARES 5 MONTHS 50000 SHARES 2.5 MONTHS (L) RELIANCE NATURAL RESOURCES LTD 100000 SHARES 11 MONTHS 50000 SHARES 5 MONTHS 50000 SHARES 2.5 MONTHS 1600 SHARES 2 MONTHS (M) RELIANCE VENTURES - 100000 SHARES 11 MONT HS 50000 SHARES 5 MONTHS 50000 SHARES 2.5 MONTHS (N) RCVL - 100000 SHARES 11 MONTHS 50000 SHARES 5 MONTHS 50000 SHARES 3 MONTHS 1600 SHARES - 2 .5 MONTHS (O) RELIANCE CAPITAL - 40000 SHARES 8 DAY S WE FIND FROM THE AFORESAID DETAILS THAT ONLY 3 SCRI PS HAVE BEEN SOLD BY THE ASSESSEE WITHIN A PERIOD OF 30 DAYS AND OTHERS WERE HELD FOR A CONSID ERABLE PERIOD OF TIME AND THE ASSESSEE HAD EXITED DUE TO FAVOURABLE MARKET CONDITIONS EVEN WIT HOUT WAITING FOR THE DIVIDEND. THERE IS NOTHING WRONG IN ASSESSEE MAKING HUGE PROFITS EVEN IN INVESTMENT PORTFOLIO BY EXITING AT THE RIGHT TIME. ONE MORE FACTOR TO BE CONSIDERED IN T HE FACTS OF THE INSTANT CASE IS THAT THE ASSESSEE CONTINUED TO REMAIN TRADER IN SHARES EVEN AFTER TRA NSFERRING OF THE SHARES FROM TRADING INTO 16 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. INVESTMENT PORTFOLIO. EVEN AFTER THE SHARES IN IN VESTMENT PORTFOLIO WERE SOLD, THE ASSESSEE STILL CONTINUED TO REMAIN AS TRADER IN SHARES BY PURCHASI NG THE SHARES IN TRADING CATEGORY. THE ASSESSEE HAD ALSO REPLENISHED ITS INVESTMENTS IN TH E INVESTMENT PORTFOLIO BY WAY OF FRESH PURCHASES DURING THE YEAR. WE PLACE RELIANCE ON THE CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF DY. CIT V. RELIANCE TRADING ENTERPRISES LTD . IN ITA NO. 944/KOL/2008 DATED 3.1.2008 WHEREIN IT WAS HELD THAT : 'WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE REC ORDS AS WELL AS THE DOCUMENTS CONTAINED IN THE PAPER BOOK FILED BEFORE US. THERE IS NO DENYING THE FACT THAT AS PER THE ACCOUNT MAINTAINED THE ASSESSEE HAD ACTED BOTH AS A TRADER AS WELL AS INVE STOR IN SHARES AS PER THE MEMORANDUM AND ARTICLES OF ASSOCIATION. ACCOUNTS WERE MAINTAINED F OR TRADING/BUSINESS SHARES WHICH ARE HELD AS STOCK IN TRADE AND SEPARATELY FOR INVESTMENT SHARES WHICH ARE HELD AND SHOWN IN BALANCE SHEET UNDER THE HEAD INVESTMENT REPRESENTING CAPITAL ASSE TS. THE DECISIONS USED TO BE TAKEN BY THE ASSESSEE AT THE TIME OF PURCHASE ITSELF BASED ON DI FFERENT FACTORS WHETHER ANY SHARE AND SECURITY WAS TO BE HELD AS INVESTMENT OR TRADING. WHEN THE S HARES ARE ACCOUNTED FOR IN THE BOOKS AS INVESTMENT SHARES, THE VOLUME OF TRANSACTION OF SUC H SHARES CANNOT ALTER ITS STATUS FROM INVESTMENT TO TRADING. PROFIT ON SALE OF SUCH INVES TMENT SHARES HELD, AS CAPITAL ASSETS ARE ASSESSABLE UNDER THE HEAD CAPITAL GAIN. PERIOD OF H OLDING OF SUCH ASSETS CANNOT DETERMINE ITS STATUS OR CHANGE IT FROM INVESTMENT (CAPITAL) TO TR ADING (STOCK IN TRADE). THE AUDITED ACCOUNTS FOR THE ASSESSMENT YEAR 04-05 AND THE EARLIER YEARS PLA CED IN THE PAPER BOOK MADE IT CLEAR THAT EVERY YEAR THE ASSESSEE HAD ACQUIRED SHARES FOR TRA DING PURPOSE AND SEPARATELY ALSO FOR INVESTMENT PURPOSE WITH AN INTENTION TO EARN DIVIDE ND INCOME IN ADDITION TO THE PROSPECT OF MAKING PROFIT ON SALE OF SUCH INVESTMENT SHARES AT AN APPROPRIATE OPPORTUNE MOMENT WITHOUT MAKING ANY HURRY FOR SELF IGNORING DIVIDEND. THE IN VESTMENT SHARES AND SECURITIES PURCHASED AND HELD TILL THEIR SALE HAD DUAL PURPOSE I.E. FOR EARN ING DIVIDEND AS AN INCIDENTAL INCOME AS WELL AS TO MAKE PROFIT ON SHARES AT APPROPRIATE TIME. THE C ONCLUSIONS DRAWN BY THE ASSESSING OFFICER BY TREATING THE INVESTMENT SHARES AS TRADING SHARES WA S BASED PURELY ON ASSUMPTIONS AND PRESUMPTIONS WITHOUT BRINGING ANY RECORD ANY MATERI AL OR EVIDENCE IN SUPPORT THEREOF. THE ASSESSING OFFICER DID NOT REJECT THE BOOKS OF ACCOU NTS VIS A VIS THE AUDITED ACCOUNTS U/S 145 OF THE IT ACT BEFORE ARRIVING AT SUCH A CONCLUSION. THE AS SESSING OFFICER'S FINDING CANNOT THEREFORE BE ACCEPTED.' 5.14. WE FIND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME ALSO WHEREVER DECLARED AND ELIGIBLE, WHICH IS QUITE REFLECTIVE OF THE INTENTIO N OF INVESTMENT AND NOT FOR PROFIT MOTIVE THOUGH AN INVESTOR IS NOT PRECLUDED FROM REALIZING ITS INVESTMENT WHICH MAY RESULT INTO PROFIT IN FAVOURABLE CIRCUMSTANCES. 5.15. WE ALSO FIND THAT THE PRACTICE FOLLOWED BY T HE ASSESSEE BY OFFERING CAPITAL GAINS FOR INVESTMENT ACTIVITIES AND BUSINESS INCOME FOR TRADI NG ACTIVITIES IN THE EARLIER YEARS HAVE BEEN CONSISTENTLY ACCEPTED BY THE REVENUE IN SECTION 143 (3) PROCEEDINGS FOR THE ASST YEAR 2005-06, COPY OF WHICH ORDER IS PLACED ON RECORD BEFORE US. THE ASSESSMENT YEAR UNDER APPEAL BEFORE US 17 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. IS ASST YEAR 2006-07. WE DO NOT FIND ANY LOGICAL RE ASON FOR THE REVENUE TO DEVIATE FROM ITS CONSISTENT STAND TAKEN IN THE EARLIER YEARS ACCEPTI NG THE STAND OF THE ASSESSEE HAVING DUAL PORTFOLIO AND OFFERING INCOME UNDER CAPITAL GAINS A ND BUSINESS INCOME. 5.16. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PURO HIT REPORTED IN (2011) 336 ITR 287 (BOM) HAD CONSIDERED THE ISSUE UNDER CONSIDERATION WHERE IN THE QUESTIONS RAISED BEFORE THE HONBLE BOMBAY HIGH COURT AND DEC ISION RENDERED THEREON ARE AS BELOW:- ( A ) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE ITAT WAS JUSTIFIED IN TREATING THE INCOME FROM SALE OF 75900 3 SHA RES FOR RS.5,00,12,879/- AS AN INCOME FROM SHORT TERM CAPITAL GAIN AND SALE OF 388 797 SHARES FOR RS.6,65,02,340/- AS LONG TERM CAPITAL GAIN AS AGAINST THE 'INCOME FROM BUSINESS' ASSESSED BY THE A. O. ? ( B ) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRINCIPLE OF CONSISTENCY MUST BE APPLIED HERE AS AUTHORITIES DID NOT TREAT THE ASSESSEE AS A SHARE TRADER IN PRECEDING Y EAR, IN SPITE OF EXISTENCE OF SIMILAR TRANSACTION, WHICH CANNOT IN ANY WAY OPERATE AS RES JUDICATA TO PRECLUDE THE AUTHORITIES FROM HOLDING SUCH TRANSACTIONS AS BUSINESS ACTIVITI ES IN CURRENT YEAR? ( C ) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW., THE HON'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRESENTATIO N IN THE BOOKS OF ACCOUNT IS THE MOST CRUCIAL SOURC E OF GATHERING INTENTION OF THE ASSESSEE AS REGARDS TO T HE NATURE OF TRANSACTION WITHOUT APPRECIATING THAT THE ENTRIES IN THE BOOKS OF ACCOU NTS ALONE ARE NOT CONCLUSIVE PROOF TO DECIDE THE INCOME? THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THA T THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF T RANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECT LY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESS EE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RE LATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIV ERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF I NVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THERE FROM SHOULD BE TREATED EITHER AS SHO RT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLD ING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FO R THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTA NTIAL QUESTION OF LAW. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUN AL HAS OBSERVED IN PARAGRAPH 8.1. OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTEN T PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE P RESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED T HAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES JUD ICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE PO SITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FA CTS AND CIRCUMSTANCES ARE IDENTICAL, 18 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. PARTICULARLY IN THE CASE OF THE ASSESSEE. THIS APPR OACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPT ING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. IN SO FAR AS QUESTION (C) IS CONCERNED, AGAIN THERE CANNOT BE ANY DISPUTE ABOUT THE BASIC PROPOSITION THAT ENTRIES IN THE BOOKS OF ACCOUNT AL ONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. THE TRIBUNAL HAS APPLIED THE CORRECT PRI NCIPLE IN ARRIVING AT THE DECISION IN THE FACTS OF THE PRESENT CASE. THE FINDING OF FACT DOES NOT CALL FOR INTERFERENCE IN AN APPEAL UNDER SECTION 260A. NO SUBSTANTIAL QUESTION OF LAW IS RAISED. THE APPEA L IS ACCORDINGLY DISMISSED. ' IT IS PERTINENT TO NOTE THAT THE DECISION OF BOMBAY HIGH COURT WAS SUBJECTED TO FURTHER APPEAL BY THE REVENUE BEFORE THE HON'BLE APEX COURT AND TH E SPECIAL LEAVE PETITION (SLP) WAS DISMISSED BY THE SUPREME COURT. 5.17. WE ALSO FIND THAT THERE IS NO MATERIAL BROUGH T IN BY THE REVENUE TO SHOW THAT SEPARATE ACCOUNTS OF TWO PORTFOLIOS ARE ONLY A SMOKESCREEN A ND THERE IS NO REAL DISTINCTION BETWEEN TWO TYPES OF HOLDINGS. THIS COULD HAVE BEEN DONE BY SHO WING THAT THE DISTINCTION SOUGHT TO BE CREATED BETWEEN TWO TYPES OF PORTFOLIOS IS NOT REAL BUT ONLY ARTIFICIAL AND ARBITRARY. IN THE INSTANT CASE, THE LD AO HIMSELF ADMITS THAT THE ASSESSEE MA INTAINS TWO SEPARATE PORTFOLIOS IN THE YEAR UNDER APPEAL AND ALSO IN THE EARLIER YEARS. THE BO OKS OF ACCOUNTS OF THE ASSESSEE ALSO SUPPORT THE SAME. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WE RE NOT REJECTED BY THE LD AO AND THE STAND OF THE ASSESSEE IN OFFERING LONG TERM CAPITAL GAINS UNDER INVESTMENT PORTFOLIO IS NOT DISPUTED BY THE REVENUE. THEREFORE, IN ABSENCE OF ANY MATERIA L TO THE CONTRARY, AND ON APPRECIATION OF CUMULATIVE EFFECT OF SEVERAL FACTORS PRESENT AS CUL LED OUT ABOVE, WE HOLD THAT THE NET SURPLUS ON SALE OF SHARES UNDER INVESTMENT PORTFOLIO SHOULD BE CHARGEABLE TO CAPITAL GAINS ONLY AND ASSESSEE IS NOT TO BE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN INVESTMENT PORTFOLIO. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES, F INDINGS GIVEN THEREON AND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDENTS RELIED UP ON HEREINABOVE, WE ALLOW THE GROUND NO. 1 RAISED BY THE ASSESSEE. 6. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN TREATING THE NORMAL BUSINESS INCOME OF RS. 2,25,36, 746/- IN F&O SEGMENT AS SPECULATION INCOME IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 19 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. 6.1. THE LD AR FAIRLY ADMITTED THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ITA NO. 417/KOL/2011 FOR ASST YEAR 2005-06 DATED 14.7.2016. WE FIND THAT THIS TRIBUNAL IN PARA 16 OF THE SAID ORDER HAD HELD AS UNDER:- 16. AS REGARDS GROUND NO. 2 OF THE APPEAL OF THE AS SESSEE FOR A.Y. 2005- 06, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING T O THE TREATMENT GIVEN BY THE ASSESSING OFFICER AND UPHELD BY THE LD. CIT(APPEALS) TO THE I NCOME OF RS.1,71,54,470/- EARNED AS WELL AS LOSS OF RS.1,00,42,079/- AND RS.1,14,73,595 /- SUFFERED FROM THE OPERATIONS IN THE F&O SEGMENT IN THE STOCK BROKING BUSINESS AS SPECUL ATION INCOME/LOSS IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE AS SESSEE BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF SHREE CAPITAL SERVICES LIMITED RENDERED VIDE ITS ORDER DATED 31.07.2009, WHEREIN IT WAS HELD THAT IN COME/LOSS FROM THE F&O TRANSACTIONS PRIOR TO 24.01.2006 HAS TO BE TREATED AS SPECULATIO N PROFIT/LOSS AND THIS POSITION IS ACCEPTED EVEN BY THE LD. COUNSEL FOR THE ASSESSEE A T THE TIME OF HEARING BEFORE US. WE, THEREFORE, RESPECTFULLY FOLLOW THE SAID DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) O N THIS ISSUE. GROUND NO. 2 IS ACCORDINGLY DISMISSED. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DISMIS S THE GROUND NO.2 RAISED BY THE ASSESSEE . 7. WE FIND THAT THE LD AO HAD VALUED THE SHARES O F RELIANCE INDUSTRIES LTD KEPT IN INVESTMENT PORTFOLIO AT THE LOWER OF COST OR MARKET PRICE USING FIFO METHOD WHICH WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEA L BEFORE US ON THE FOLLOWING GROUND:- 3. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCE S OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONTINUING THE A.O'S ACTION IN R EVALUING THE STOCK OF SHARES OF RELIANCE INDUSTRIES LTD. ACCORDING TO THE FIFO METHOD BY TRE ATING THEM AS TRADING SHARES WITHOUT CONSIDERING THE FACTS THAT THE CONCERNED RIL SHARES TRANSFERRED FROM TRADING TO INVESTMENT ACCOUNT WERE HELD THEREAFTER IN INVESTMENT ACCOUNT ONLY WHICH HAD NO CONNECTION WITH THE OTHER RIL SHARES HELD AS TRADING. ACTIONS OF THE AO AND T HE LD.CIT(A) WERE WHOLLY ARBITRARY, UNREASONABLE, UNCALLED FOR AND BAD IN LAW. 7.1. IN VIEW OF OUR DECISION GIVEN FOR GROUND NO. 1 RAISED BY THE ASSESSEE, THERE IS NO NEED TO ADJUDICATE THIS GROUND AND IT BECOMES INFRUCTUOU S. WE HAVE ALREADY HELD THAT THE SURPLUS OF RS. 11,05,41,076/- SHOULD BE TREATED ONLY AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME. HENCE THERE IS NO QUESTION OF ANY VALUATIO N DIFFERENCE. HENCE THE GROUND NO. 3 RAISED BY THE ASSESSEE IS ALSO ALLOWED. 8. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE IN THE FACTS AND CIRCUMSTANCE S OF THE CASE. 20 ITA NO.300-418/KOL/2011, AY 2006-07 LOKENATH SARAF SECURITIES LTD. 8.1. THE LD AR FAIRLY ADMITTED THAT THIS ISSUE IS C OVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 417/KOL/2011 FOR ASS T YEAR 2005-06 DATED 14.7.2016. WE FIND THAT THIS TRIBUNAL IN PARA 20 OF THE SAID ORDER HAD HELD AS UNDER:- 20. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT I N THE RELEVANT YEAR UNDER CONSIDERATION I.E. A.Y. 2005-06, RULE 8D WAS NOT APPLICABLE AND, THEREFORE, THE DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EXEMPT INCOME IS REQUIRED TO BE MADE ON SOME REASONABLE BASIS. IN THIS REGARD, THIS TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT THE DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF EXPENS ES INCURRED IN RELATION TO THE INCOME AT 1% OF SUCH EXEMPT INCOME WOULD BE FAIR AND REASONABLE. FOLLOWING THIS CONSISTENT STAND TAKEN BY THE TRIBUNAL, WE RESTRICT THE DISALLOWANCE UNDER SECTIO N 14A TO THE EXTENT OF 1% OF THE EXEMPT INCOME IN THE FORM OF DIVIDEND AND LONG-TERM CAPITAL GAIN AND ALLOW PARTLY GROUND NO. 5 OF THE ASSESSEES APPEAL. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE LD AO TO DISALLOW 1% OF EXEMPT INCOME TO THE TUNE OF RS. 1,21,547/- (1% OF RS 1,21 ,54,752/-). ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AS NOT MAINTAINABLE AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.08.2016 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 3 RD AUG, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-6, KOLKATA. 2 RESPONDENT LOKENATH SARAF SECURITIES PVT. LTD. , 6, LYONS RANGE, KOLKATA -700 001. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .